If There Are Significant Economies of Scale in an Industry

question 27

Multiple Choice

If there are significant economies of scale in an industry, then

• A) a firm that is large may be able to produce at a lower unit cost than can a small firm.
• B) a firm that is large will have to charge a higher price than will a small firm.
• C) entry to that industry will be easy.
• D) firms must differentiate their products to earn economic profits.

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Definitions:

Prospective Treatment

An approach in accounting where changes are applied to transactions and events from a specific date forward.

Reporting Entity

An entity, such as a company or organization, that must prepare financial statements to provide information to users.

MACRS Depreciation

The Modified Accelerated Cost Recovery System is a method of depreciation for tax purposes in the United States, allowing for faster depreciation of assets in the early years.

Double-Declining-Balance

A method of accelerated depreciation which computes depreciation at twice the straight-line rate, applied to a decreasing book value each year.